Shareholder meetings of the software giant SAP are usually straightforward enough. Successful strategy means growth, which means higher dividends and shareholder applause. But last year’s event saw one unusually contentious issue, with speaker after speaker criticizing the company’s new executive pay model, which brought massive increases for top managers. The measure passed, but with just 55 percent support.

This year promises even greater controversy. Powerful investors are ranged against the board, including Union Investment, British pension fund Hermes, and American shareholder advisor ISS. They disapprove of pay policy, especially since the board appears not to have taken last year’s disquiet into account.

One particularly critical voice is that of Hans-Christoph Hirt, co-head of Hermes. Speaking to the magazine Der Spiegel on Saturday, he aimed directly at chairman and SAP co-founder Hasso Plattner: “The SAP board is showing no sense of the social climate around executive pay. They are risking a wider tightening of the laws on this.”

The SAP board is showing no sense of the social climate around executive pay. Hans-Christoph Hirt, co-head of British pension fund, Hermes

The question of top managers’ compensation has provoked controversy in Germany in recent months, in the wake of numerous high-profile pay and pension deals. In an election year, parties are rushing to take a stand. The center-left Social Democrats have proposed a new law which would limit the tax-deductibility of salaries and bonuses and institute a binding ratio between the pay of firms’ lowest- and highest-paid staff. In response, Angela Merkel’s center-right Christian Democrats have suggested increased transparency and more powers for shareholders to vote down excessive deals.

Mr. Hirt is not alone in his anger at the SAP board. Financial industry sources suggest more than 40 percent of shareholders may vote against this year’s executive pay settlement. One way or another, SAP will feel bound to react. A spokesperson for the firm told Handelsblatt: “The chair will evaluate investors’ criticisms and make a statement to the AGM.”

SAP’s new pay rules raised eyebrows when they were published in February, outlining a massive jump for SAP managers in 2016. Thanks to a sharp rise in bonuses, total executive pay leapt to €43.3 million, around $47.5 million – a threefold increase on the previous year. The biggest gainer was CEO Bill McDermott, who earned just under €14 million, making him the highest-paid German executive. The company’s pay report described this as “internationally competitive.”

Shareholder criticism goes beyond the amounts paid. ISS, among others, criticizes the lack of specific targets to measure performance, and says perks and severance pay are above market rates. “SAP’s executive pay structures, the widening pay gap in the company, and the level of bonuses are all questionable,” said Mr. Hirt of Hermes.

Above all, investors are angry that last year’s protest vote appears to have been ignored, with the board apparently making no attempt at dialogue. Questions of corporate governance have fallen on “deaf ears,” said one of SAP’s twenty largest investors. “The board has failed to react to important criticism from shareholders, not recognizing the need for improvement. This highlights serious corporate governance failings in the board,” ISS said in a statement.

The board’s personnel policies are another bone of contention with shareholders. SAP’s directors are unusually long-serving: one has been on the board for almost thirty years. The company has no limitation on terms served, unlike other major German firms. Insurance corporation Allianz, for example, has a maximum of fifteen years.

More than ever, attention is focused on the succession to Mr. Plattner, especially since his co-founder Jim Hagemann Snabe left the company to become chairman at Siemens. Mr. Plattner is 73 years old, and shows no signs of giving up. SAP does have an internal age limit of 75, but this can be set aside if necessary. Investors want planning and clarity on the question. “I would strongly recommend that SAP at least brings a plausible successor onto the board,” says Hans-Martin Buhlmann from VIP, the Association of Institutional Shareholders. Mr. Plattner did not respond to questions from Handelsblatt on the issue.

There are few obvious candidates on the current board young enough to take over from the current chair. On paper, Bernard Liautaud seems to fit the bill. He is in his early fifties, a partner at the renowned venture capital firm Balderton Capital, and was previously the founder and CEO of the software firm Business Objects, taken over by SAP in 2008 for $6.8 billion. But he currently holds no less than twelve directorships, a fact that will disquiet institutional investors.

The board’s personnel policies are another bone of contention with shareholders, especially the issue of Mr. Plattner's successor.

Finding a successor will be hard, not least because of Mr. Plattner’s unusually active role. The company’s co-founder, he moved from management to the supervisory board in 2003, but was given an unpaid consultancy role which has allowed him to exert substantial continued influence. He was a major force behind the development of the Hana database, a key product for the company. Few chairmen have anything like his involvement. “It will be hard for anyone to follow in Plattner’s footsteps,” said Mr. Buhlmann, the head of the institutional investors’ association. The person appointed to replace Mr. Snabe will be closely observed. But that search is made more complex by the wish to have more women and foreigners on the board.

Sooner or later, the make-up of the board will change substantially. A generational change will come in the next few years, said Ingo Speich, a fund manager with Union Investment. The company is also currently trying to reduce the size of the board from 18 to 12 members – a court case on the matter, brought by the trade unions, is ongoing.

At the shareholder meeting on Wednesday, Mr. Plattner must first answer the questions raised on pay by the group of investors led by Hermes. No one should underestimate the determination of the British pension fund. One SAP board member, Klaus Wucherer, can confirm this from bitter personal experience – seven years ago, when Mr. Wucherer was chairman of Infineon, Mr. Hirt of Hermes began a shareholder revolt against him. It was successful: a year later, Mr. Wucherer had resigned.

Christof Kerkmann is an editor for Handelsblatt and writes about the technology sector. Daniel Schäfer is head of Handelsblatt's finance pages and based in Frankfurt. Robert Landgraf is Handelsblatt's chief correspondent for the financial markets. To contact the authors: [email protected], [email protected], [email protected]